MiFid disrupts equity research; Falling rates falling knives?

  • Mifid II requires fund managers in Europe to split payments for research and trading. US banks, currently exempt from these rules, have pushed back against them, arguing that it added to their regulatory burden.

  • These rules have prompted European fund groups to absorb the cost of research, reducing the amounts they spend, shrinking the investment research industry.

  • As SEC looks to extend the exemption for US brokers’, this would be a huge reprieve for the largest banks, who have been resisting unbundling for decades

  • Yields on U.S. government bonds have fallen broadly this year, but the decline in the yield on 10-year Treasury inflation protected securities has beenpersistent, a sign of concern for the economy

  • Real yields are notable because they show the purchasing power investors can expect to obtain from government bonds after accounting for inflation

  • One of the reasons why real yields may have declined in recent weeks is that investors are buying TIPS as insurance against a surprise uptick in inflation as the Federal Reserve prepares to cut interest rates